Methodology & Positive Compliance with Tax Law
Amtec computes rebate utilizing a reconciled sources and uses statement of proceeds from the closing documents and tracks these sums into specific bond accounts. As proceeds are expended for project purposes, the total of all investment "receipts," less the initial deposit of bond proceeds, produces the investment income amount. Each "receipt" is future valued at the bond yield to the computation date for the issue. Care is exercised to ensure that the rebate amount is solved using the same interest payment frequency and date convention as the bonds. If an incorrect convention is utilized, the results will not be accurate.

The initial deposit of bond proceeds is future valued at the bond yield and, using the appropriate compounding convention, will produce the allowable future value amount of non-purpose payments, which includes investment earnings. The difference between the future value of the "receipts" and the "payments" equals the rebate amount. If the future value of the initial non-purpose payments allocated to bond proceeds is greater than the future value of the "receipts," there is no rebate liability. If the future value of "receipts" is greater, the rebate liability is identified.

Additional financial controls, achieved through application of the Amtec methodology are:

• The identification of the rate of return from all investments which can be compared to the actual investment portfolio returns for accuracy.
• The consolidated total of construction disbursements and investment income which is balanced to the General Ledger to ensure there are no erroneous postings or allocation errors.

It is not uncommon for a fund of bond proceeds to receive deposits from grants or other funds that are not bond proceeds or subject to rebate. The controls that are built into the Amtec computation methodology, easily identify errant deposits or withdrawals which will generate an inquiry. If these amounts are not detected, the rebate liability can be artificially increased and the IRS could be overpaid. Conversely, the liability could be artificially understated and discovered in an audit causing the issuer to pay an additional rebate liability, penalties and interest.

The appropriate test for rebate computation software is to recompute any or several of the computations used in the IRS Rebate Regulations as examples of how to arrive at the rebate amount. If the software computes the same answer as given in the Regulations, it is deemed to be operating correctly.

It is important that the information given by the issuer is interpreted correctly by the computation service and that it is translated into the rebate computation appropriately. A thorough review of the final results is conducted for correctness and application of exceptions to specific rules.

Amtec issues its professional opinion with each rebate computation. Samples of our opinion are included in the rebate report appended. Additionally, Amtec has developed, and our staff utilizes, strict internal controls when processing rebate computations. Amtec employs General Counsel to write opinions and review regulations. This level of diligence allows us to issue our unqualified opinion.

Tax Compliance Philosophy
Our service enables issuers to become more proactive rebate managers. Most competing services offer a one time, five year, catch up computation service. We structure our services toward the early recognition of any rebate liability through the preparation and issuance of annual computations. These reports also provide the issuer with an opportunity to realign its investments to maximize its earnings and eliminate any negative arbitrage which may have accrued prior to the computation. Amtec’s process ensures a regular review of investment performance and rebate status as well as an opportunity to realign investments. In addition, our reports also identify the target for the total earnings allowed by the Code for each issue. If a rebate liability exists, our reporting frequency quantifies the liability amount early so reserves can be established for its payment. Should interest rates fall, this reserve can then be systematically released for project use or debt service assistance.

Arbitrage Rebate Computations (Frequency & Philosophy)
The Tax Code requires all rebate liability to be settled no less than every five years following the issuance of bonds. On the Computation Date, at least 90% of the arbitrage liability must be paid.

The Successful Issuer
The successful issuer maximizes the earnings on the investment of bond proceeds and accomplishes the following:

• Earns up to, or in excess, of the bond yield
• Establishes a reserve for the payment of the rebate liability.

When this is accomplished, the issuer has received the maximum amount of allowable earnings under the Tax Code and provides additional cash, up to the bond yield, to reduce the interest carrying cost on unspent bond proceeds.

Proactive Rebate Management
The cornerstone of Amtec’s service philosophy is the delivery of regularly scheduled rebate reports from current records. Through efficiencies achieved by the Amtec process, pricing is usually less than when rebate is computed in the fifth year only. In addition to cost effective pricing, our clients receive the following value added services:

• Identification of the rebate liability early;
• Regularly prepared rebate updates;
• Performance of their investment portfolio;
• Targets to achieve which can eliminate accumulated negative arbitrage
• If a rebate liability accrues, it will be properly reserved for a future payment and recorded in the financial statement.

The Wait and Calculate Philosophy (not recommended)
Bond issuers who wait until the fifth year to compute rebate may not achieve the same level of success as the proactive issuer. Waiting until the fifth year should achieve each of the regulatory requirements but may be cumbersome and very expensive. The older the records, the more difficult they may be to retrieve. Supplying incomplete records to your consultant will cause time delays and may increase your computation fee. If a liability has accumulated, it was unknown and not reflected in the financial statements. Rebate payments can be very large. Issuers not aware of their rebate liability may find themselves in a difficult financial situation if an unexpected rebate liability is determined. Tax exempt bond issuers generally do not have large amounts of unallocated cash on hand to pay rebates.